Brazil expected to exceed spending ceiling by 2% of GDP this year, says Citi

RIO DE JANEIRO, BRAZIL – Brazil is on track to breach its spending ceiling by 2% of Gross Domestic Product (GDP) this year, Citi economists warned on Tuesday, predicting that the government will significantly relax its fiscal policy to cope with the Covid-19 pandemic.

This will mainly consist of R$71 (US$13) billion in non-recurring extracted measures, such as emergency cash payments to the population and vaccines, and R$62 billion in aid for states, job protection, and credit programs.

“The Covid-19 situation has escalated considerably, raising pressure for the extension of disease-related fiscal measures. The government is expected to do this very soon, and therefore we are revising our long-standing worse-than-consensus fiscal scenario,” they said.

This extra spending is likely to be financed by the government approving extraordinary credits or establishing a broader state of calamity, Citi economists said.

On Monday, the National Congress approved a bill that alters the Budget Guidelines Law (LDO) and brings adjustments, with the government’s endorsement, to allow the controversial sanction of this year’s budget. The text will be sent to be sanctioned by President Jair Bolsonaro.

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